The stock market rally is being fueled by these massive stocks – ABOUT MAG 2020

The rapid spread of the coronavirus pandemic has increased economies and tested markets worldwide.

^ GSPC) plummeted in a bear market at its fastest pace in history, closing at a three-year low on March 23. Since rock bottom, S&P has risen 29% and is in pace with its first consecutive weekly gains since the week ending February 14, before the coronavirus-related settlement began. This occurs even when coronavirus cases and the death toll continue to increase worldwide. “Data-reactid =” 17 “> After reaching the highest historical level on February 19th, the S&P 500 (^ GSPC) plummeted in a bear market at its fastest pace in history, closing at least three years on March 23. Since the bottom, S&P has risen 29% and is in pace with its first consecutive weekly gains since the week ending February 14, before the coronavirus-related selloff began. This occurs even when coronavirus cases and the number of deaths continue to increase worldwide.

MSFT) shares rose 30% from the bottom, while Apple (AAPL) jumped 25%, Amazon (AMZN) increased by 24%, Facebook (FB) increased by 21% and the alphabet (GOOG, GOOGL) rose by 20%. “data-reactid =” 18 “> The market rally, however, was largely driven by a group of stocks: mega-cap tech. Microsoft (MSFT) shares rose 30% from the bottom, while Apple (AAPL) jumped 25%, Amazon (AMZN) increased by 24%, Facebook (FB) increased by 21% and the alphabet (GOOG, GOOGL) rose by 20%.

In a note to customers on Friday, the Bank of America strategist noted that S&P is “more focused on the top 5 stocks than ever before” as a result of these names’ superior performance.

“One of the important things to remember is that a significant part of these changes in the market are driven by ETFs and index funds,” said Alex Piré, director of client portfolio management at Seeyond, on Friday in an interview with Yahoo Finance. “What obviously happens with these is that they tend to be inclined towards larger securities and larger securities. These are typically weighted indices, so they kind of create this inflection in these types of securities. “

An Amazon classification worker takes a package to a distribution center. Photo: Sebastian Kahnert / dpa-Zentralbild / dpa (Photo by Sebastian Kahnert / photo alliance via Getty Images)

Within the S&P 500 index, five of the top six holding companies consist of Microsoft, Apple, Amazon, Facebook and Alphabet. These five large capital technology stocks represent approximately 20% of the total value of the S&P 500, and that number has been growing amid the COVID-19 crisis.

“An important explanation is that, unlike the other indexes, half of the top 10 companies in the S&P 500 are discretionary IT or consumer giants,” Capital Economics wrote in a note Thursday. “They have benefited, at least in relative terms, from measures taken to control the spread of the virus. We believe that the S&P 500 can remain in good standing for a while, even after these measures are mitigated. “

Small cap versus large cap

IWM, sank 2%, while the broader market rose 2% and the technology ETF, XLK, jumped 4%. Of its highs, IWRM fell 29%. Meanwhile, S&P fell 16% and XLK is about 14% from the biggest increase ever. “Data-reactid =” 35 “> On the other hand, small cap stocks did not do as well as their stocks. Just last week, only the ETF that tracked the capital letters, IWM, sank 2%, while the broader market rose 2% and the technology ETF, XLK, jumped 4%. Of its highs, IWRM fell 29%. Meanwhile, the S&P fell 16% and the XLK is about 14% of its historic high.

Low performance in small caps is likely to persist, according to Piré.

“Now, what we are seeing, I think in small letters, there is still a lot of thought that, see, there is more [coronavirus] “Bonds tend to be more sensitive to the economy and may have more volatility built in,” said Piré.

retail sales data showed a record drop consumer spending during the month, while initial unemployment claims exceeded five million for the third consecutive week. The manufacturing data was bleak, and the feeling is being overwhelmed. “data-reactid =” 38 “> The stock markets may have gone up this week, but the economic data is telling a very different story. retail sales data showed a record drop consumer spending during the month, while initial unemployment claims exceeded five million for the third consecutive week. The manufacturing data was bleak, and the feeling is being overwhelmed.

However, there is still hope that the economy can recover as soon as the virus is contained and a vaccine will be developed soon. Even if big-tech technology stocks have managed to outperform in an environment where consumer spending has stopped, names like Amazon and Apple are still heavily exposed to consumers, so investors need to be cautious, Piré argued. .

“I think it helps a lot of those important, technological names that have these high beta components built in, but I would be cautious about the future. We still don’t have a cure. We have hope. We don’t have a vaccine yet. We have hope there too, ”said Piré. “Unless we have a cure tomorrow and test it tomorrow, that V-shaped recovery is unlikely to come back.”

@heidi_chung.“data-reactid =” 41 “>Heidi Chung is a reporter at Yahoo Finance. Follow her on Twitter: @heidi_chung.

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Paula Fonseca